Inside Health

States Told Not to Steer Beneficiaries To Drug Plans

By ROBERT PEAR

Published: April 8, 2005

The Bush administration has told states that they cannot steer Medicare beneficiaries to any specific prescription drug plan, even if state officials find that one or two insurance plans would provide the best deals for elderly people with low-incomes.

States like Connecticut, New Jersey, New York and Pennsylvania have for years had their own programs to help elderly people with drug costs. In some cases, the state coverage is superior to what Medicare will offer. Many states want to continue those programs to supplement the Medicare drug benefit that becomes available in January.

A federal advisory commission said recently that states should be allowed to enroll their low-income Medicare beneficiaries in ''one or more preferred prescription drug plans.'' This would help ensure ''continuity of care,'' it said.

But in a memorandum to state officials, the Bush administration rejected that recommendation.

State programs that steer people to a specific drug plan are ''contrary to Medicare policy goals'' and ''may violate federal fraud and abuse laws,'' said the memorandum, signed by Leslie V. Norwalk, deputy administrator of the federal Centers for Medicare and Medicaid Services.

By enrolling low-income people in a preferred plan, Ms. Norwalk said, state officials are violating beneficiaries' freedom of choice and undermining competition among insurers.

Moreover, she said, if states receive money -- rebates or other ''financial benefits'' -- in return for sending people to a particular drug plan, such payments may constitute illegal kickbacks.

Thomas M. Snedden, director of the Pharmaceutical Assistance for the Elderly program in Pennsylvania, said the federal government was ''threatening states that do not participate in the free-market model of prescription drug coverage'' envisioned by the Bush administration.

''In Pennsylvania,'' Mr. Snedden said, ''we may have 12 or 14 private plans offering drug coverage to Medicare beneficiaries. It would be extremely difficult for the state to coordinate benefits with all of them. We want to be able to pick a single plan and enroll our people.''

Senator Jon Corzine, Democrat of New Jersey, said the administration's stance made it more likely that ''seniors will see a reduction or disruption of the drug coverage they receive'' under his state's 30-year-old pharmacy assistance program, which has strong bipartisan support.

The commission said that more than 1.3 million low-income people were receiving assistance from state-financed programs in 21 states.

Ms. Norwalk said states could help Medicare beneficiaries evaluate the available drug plans. But, she said, states must not ''eliminate choice for the low-income subsidy population by steering them into one preferred prescription drug plan.''

Federal officials were alarmed to learn that some states were drafting legislation that would allow them to act as ''authorized representatives'' for people in state drug assistance programs. Using this power, state officials could enroll certain state residents in a preferred Medicare drug plan. The drug plans are expected to negotiate with drug companies to obtain discounts, rebates and other price concessions.

Ms. Norwalk said ''we are particularly concerned'' that such rebates would go into state coffers, rather than being used to reduce drug prices for low-income Medicare beneficiaries. High drug prices mean ''higher costs for all Medicare beneficiaries and for the Medicare program,'' she said.

Under the law passed by Congress in 2003, Medicare will subsidize the basic drug benefit and will provide extra subsidies to defray costs for low-income people. By favoring one Medicare drug plan, Ms. Norwalk said, states would illegally discriminate against the others, impairing their ability to recruit members and secure discounts.

The federal advisory commission, appointed last June by the secretary of health and human services, analyzed the Medicare law and reached a different conclusion. People in a state pharmacy assistance program can be automatically enrolled in a Medicare drug plan, it said, as long as they have a right to ''opt out'' and choose a different plan.

Joan F. Henneberry, chairwoman of the commission, said Medicare officials could easily ''hold states accountable'' while allowing them to enroll beneficiaries in one or more preferred plans.